Implementation
The complexity of an organization redesign project depends on the degree of redesign contemplated. However, all projects have the same basic phases:
Diagnostic Phase – gather data, compute spans and layers, compare with industry benchmarks, and estimate the cost savings opportunity.
Objectives Phase – based on the diagnostic results, decide the goals of the project (e.g., 20% reduction in management), the team, and the time frame.
Design Phase – determine if the objectives can be met by optimizing the current operating model, or if the organization's structure needs to be completely redesigned.
Structure and Staff Phase – starting at the top of the organization, examine each layer's mandate, processes, and staff. Redesign each layer for increased spans of control; choose managers for redesigned positions.
Monitor Phase – after completing the project, continue to monitor the organization to ensure that the management bloat does not creep back in.
The implementation of an organization redesign program is accomplished through a typical project management process. If you decide to launch a full-time organization redesign project, then we would expect that your project would have a sponsor, an executive steering committee, a working group, potentially external consultants, representatives from Human Resources supplying employee data, representatives from Finance providing financial data, representatives from Legal providing support for potential staff reductions, a project calendar, a schedule of briefings, a Gantt chart showing project dependencies, a communication plan for employees, and a set of guidelines for managers to help guide them with the redesign process and briefings for their managers. If the items in the list are not familiar to you, then you will likely need to bring in project management support. Let's now dig a little deeper into each phase.
Diagnostic Phase
This phase provides an assessment of your firm's spans and layers versus industry benchmarks. It also estimates the approximate annual personnel expense savings if you were to optimize the management structure.
Benchmarking is a fancy word for comparing your firm's average span of control and number of organizational layers to those of your competitors or similar types of firms. For example, if your 5,000 person firm has an average span of control of 3 and 9 layers of management (a steep and narrow pyramid), and your competitors have a span of 20 and 4 layers of management (a short and broad pyramid), you know that your firm probably has a problem.
Benchmarking is not always as simple as our example above. First, you need a way to calculate your firm's spans of control and layers of management. If you have a small firm, then you can do it with a pencil and paper. However, the calculation becomes much more difficult for medium and large organizations. In these cases software is required to do the work. A second complication is that your competitive benchmarks (the spans and layers of your competitors) are probably not readily available.
Spans and layers benchmarks for your company is probably one area where external consultants can be helpful to you. Consulting firms that do reengineering for a living see many companies and collect benchmarks for different industries. For example, if your firm's business is investment banking, consultants know roughly what are the spans and layers benchmarks for a professional services firm. Those benchmarks will be very different from, say, a call center.
Comparing your company's average spans of control and total number of layers with industry benchmarks is a good first step, but there is an equally important second step: comparing subsets of the company to benchmarks as well.
A company whose firm-wide average span of control is within industry norms may have problems that are masked by averaging. For example, the European arm of the firm might have an average span of control of 20, while the US is 10, and Asian is 5. The company might show a respectable total firm average of 12, which is masking issues in Asia. Similarly, a diagnostic analysis should look at the organizations for different businesses and support groups in the firm. Because different parts of the firm have different functions, they may require different benchmarks.
Cost savings estimates are the first thought that comes to mind when senior leaders realize that they have too many managers and organization optimization is required. Similarly, leaders will probably want to know the cost of terminating unnecessary managers. These exact costs will not be known until the actual individuals who need to leave the firm have been identified. However, there is an approximate method for estimating these savings.
Each layer of the organization (CEO is on layer 1, his/her direct reports on layer 2, etc) has a range of compensations. The company's human resources department should be able to provide an average total compensation amount for each layer of the organization. By knowing how many managers we expect to remove from each layer, we can compute the total annual savings produced by removing unnecessary managers.
The leadership team can use this savings estimate to decide whether an organization optimization project, and the associated disruption to the firm, is warranted by the estimated savings.
Objectives Phase
Based on the diagnostic results, in this phase the team decides the goals of the project, the team, and the time frame.
Goals: typically an industry benchmark average span of control is chosen as the project goal. If the goal is too aggressive, it may be tempered to ensure the project does not overly disrupt the firm's operations.
Team: the CEO and senior manager support are essential for success. Equally important for success is competent project management. The managers in the organization need to be deeply committed and involved in the redesign process, but they should not run the process.
There are several groups that are candidates for managing the redesign process:
Reengineering Team – some organizations have internal reengineering teams whose mandate is to shape the organization and make it more efficient. These groups have strong project management skills, they are familiar with the firm, and their permanence allows them to manage the process over a long period of time. For all of these reasons this type of group is a natural candidate to run a redesign process. There are two potential downsides of this type of group. First, if the group is politically weak or there is sensitivity about this group being associated with layoffs, it may not be a wise choice. Second, if the group has never been through this before, and they need to do a full-fledged redesign of the entire company, then they may wish to hire a consulting firm specializing in redesign processes, at least for the first effort. The greatest benefit of having an internal reengineering group involved is it can continue to monitor the organization as part of their mandate, so that the organization does not slowly return to a bloated state over time.
An internal task force, comprised of strategy and/or finance employees, is another possibility. In this case we need to make sure that the task force has the appropriate project management skills or they will likely not be successful. This team also has the advantage that it is familiar with the company. However, the downside is that this task force may not be familiar with organization redesign and it is transient – once the project is completed they will not likely remain involved in tracking the company. If you choose this option, then folks from Human Resources should be involved and they should have the mandate to continue monitoring the organization after the redesign project is completed.
A third common approach is have the Human Resources department run the process with the strong support of consultants.
Many consultants are well versed in organization redesign and project management. Whether you choose to use consultants may depend on how big and visible is the project and your team's skill level. If you do use consultants, it is critically important that you involve company staff who will be able to monitor the company after the consultants have left the premises.
Timeframe: the timeframe of a redesign process is highly dependent on the situation, the size of the company, the degree of redesign required, the company's geographic dispersion, and the schedules of senior management. A timeframe that is too short will lead to a hasty and ill-conceived organization; a timeframe that is too long will be unduly disruptive to the organization. For a typical mid-sized company, the timeframe would be as follows:
Diagnostic Phase – one week is sufficient, if you have the appropriate data available.
Objectives Phase – two weeks, provided you have access to senior management and the company has a Reengineering Team (or similar) available immediately.
Design Phase – this depends on if you are optimizing the current model (a few weeks) or redesigning the organization's operating model (a few months).
Structure and Staff Phase – two to three weeks for each layer. During the first week the managers have to be educated about the process, inform the staff of the work, and review their organization versus a target. In the second week the managers will need to review and edit their managers' job specifications, redesign their organization, and choose their managers. In some cases this will take longer than one week. Finally, in the third week, the managers will communicate the results back to their managers and prepare them for their work on their organizations.
Monitor Phase – tracking reports should be published monthly during the redesign process and quarterly afterwards.
Design Phase
After the objectives, the timeframe, and the team have been decided, it is up to that team to decide what the new organizational design will be when the project is completed.
Partial redesign is adequate if there are pockets of the company that need to be optimized, some managers removed, but overall the structure of the organization is fine.
Complete redesign is required if there is no way to tweak the current model to meet the objectives. For example, a company that has a small organization in each state may determine that they need to streamline their organization to be regional, that is, an organization in four regions of the country: north, south, east, and west.
Similarly, they may decide that some product lines or services have too small a revenue contribution to warrant the level of management in place.
The design team cannot do the person-by-person organizational redesign of each group: that is up to the group leader and the reengineering team. However, the design team should decide which parts of the company need to be redesigned and optimized.
Structure and Staff Phase
Once we know which parts of the organization need to be addressed, and any design requirements for the organization, the structure and staffing phase is to work through the organization, starting at the top of the organization, examining each layer's mandate, processes, and staff sequentially. Redesign each layer for increased spans of control and eliminate unnecessary layers; choose managers for redesigned positions. Instruct those managers on the redesign process and charge them with redesigning their managers on the next layer. This process was discussed in the Approach chapter.
Monitor Phase
This starts with monitoring progress throughout the process and then afterwards quarterly to ensure that management bloat does not creep back in. Just like a firm periodically audits itself, periodically reviews its financial performance, and reviews the performance of its employees, it should periodically monitor its spans and layers to determine if it continues to be lean and structured optimally. The results of monitoring should be included in the management team's regular reporting.